The S&P 500’s trading activity since its March 23 low is closely tracking the index’s price movements back in 2009 when it bottomed during the great financial crisis, according to a note from DataTrek published on Monday.
Here are the similarities between the S&P 500 in 2020 and 2009:
As of June 15, 58 days off the March 23 bottom, the S&P 500 was trading 37.1% higher. Back in 2009, 58 days after the March 2009 low, the S&P 500 was trading 39.4% higher.
As the S&P 500 has traded higher, its attempts to get ahead of the 2009 rally have failed. On April 14, “the 2020 rally got ahead of 2009 by 11 full points (+27.2% from the lows vs +16.4% in 2009). The 2020 rally then gave up all those gains in the next 5 days,” DataTrek said.
Additionally, the S&P 500 started last week 13 points ahead of the 2009 rally, but a large 6% sell-off last Thursday helped again close that gap between the 2020 and 2009 rallies.
The takeaway from DataTrek is this: “The 2020 rally off the March lows has few historical comparables and 2009 is certainly the best fit both in terms of timing and magnitude.”
While the index is exhibiting similar trading tendencies to its historical performance in 2009, DataTrek does note the internal differences between the S&P 500 then and the S&P 500 now.
First, valuations are far apart. On day 58 of the S&P 500’s 2009 rally, the index traded at 10.4x trailing earnings, DataTrek said. Today, the index trades at 19.6x trailing earnings. Second, sector allocations in the index are different today than they were 11 years ago. In June 2009, the technology sector had a weight of 18.4%. Today, when you include Google and Facebook, the index’s weight in technology stocks is 32.0%, according to the note.
The energy sector allocation is also different, DataTrek said. Back then it was 12.4%. Today it sits near 3.0%.
“Don’t overthink it — 2020 is just like 2009,” DataTrek concluded. The firm said if the comparison between 2009 and 2020 continues to hold, “then the S&P 500 is set for a breather” in the short term.
From the 2009 rally’s 58th day, the index didn’t go anywhere for 34 trading days, but after that, the market continued its uptrend with a 17% rally from late July through the end of the year.
“If history repeats itself that would put the S&P at 3,588 on December 31, for an 11.1% price gain on the year,” said DataTrek. A rally to those levels would represent new record highs for the index and a 14% gain from current levels.